The federal government must fork over more than $12 billion to insurance companies that lost money by participating in the Affordable Care Act’s “risk corridors” program, the Supreme Court has ruled.
The decision rebuffs the Trump administration and Republican lawmakers such as Sen. Marco Rubio, a Florida Republican, who has characterized taxpayer funding to cover the shortfall as a bailout for the insurance industry. That’s because the “risk corridors” program gave participating insurers a special deal that limited their financial exposure for three years, starting in 2014.
The program was designed to stabilize health care insurance premiums and subsidize insurers willing to sell a risky new product—in this case, comprehensive, guaranteed issue, individual and small-group insurance covering preexisting conditions.
The understanding was that if premiums collected on Obamacare’s health care marketplaces from 2014 through 2016 exceeded an insurer’s medical expenses, the company would kick back some of its profit to the government. Conversely, if premiums failed to cover expenses, the insurer would receive payments from the government.
But as part of a backlash against Obamacare, Congress added language to appropriations bills in an effort to stop the government from making payments. The money paid into the pool quickly dried up, and Congress declined to make up the difference, so the insurers went to the U.S. Court of Federal Claims. Their claims were later rejected by a three-judge panel of the U.S. Court of Appeals for the Federal Circuit.
The 8–1 ruling by the highest court in the land came April 27 in Maine Community Health Options v. U.S., a case that was heard Dec. 10, 2019.
In creating the risk corridors program, “Congress created a rare money-mandating obligation requiring the Federal Government to make payments” according to a stated formula, Justice Sonia Sotomayor wrote for the court majority.
“And by failing to appropriate enough sums for payments already owed, Congress did simply that and no more: The appropriation bills neither repealed nor discharged [the law’s] unique obligation,” she wrote.
“These holdings reflect a principle as old as the Nation itself: The Government should honor its obligations,” the justice wrote.
“Soon after ratification, Alexander Hamilton stressed this insight as a cornerstone of fiscal policy. ‘States,’ he wrote, ‘who observe their engagements … are respected and trusted: while the reverse is the fate of those … who pursue an opposite conduct.’”
During oral arguments, the insurers’ lawyer, Paul Clement, denounced the government, accusing it of deceit.
“This case involves a massive government bait-and-switch, and the fundamental question of whether the government has to keep its word after its money-mandating promises have induced reliance,” he said.
At the same hearing, Deputy U.S. Solicitor General Edwin Kneedler responded, telling the justices that what the other side described as a statutory promise to cover losses is meaningless without action by Congress.
“The Appropriations Clause of the Constitution is central to this case,” he said, a reference to the sentence: “No money shall be drawn from the Treasury, but in consequence of appropriations made by law.”
Compelling the government to pay the insurers “would impose unprecedented liability on the United States of billions of dollars,” Kneedler said.
But in this case, the Obamacare statute imposed a duty to fund risk corridor payments that the government cannot avoid, the Supreme Court found.
“The plain terms of the risk corridors provision created an obligation neither contingent on nor limited by the availability of appropriations or other funds,” Sotomayor wrote.
Justice Samuel Alito dissented, writing that the insurers had no legal grounds for suing, and warning that the majority opinion would open the door to more liability in the future for the government.
“The Court infers a private right of action that has the effect of providing a massive bailout for insurance companies that took a calculated risk and lost,” he wrote.
“Under the Court’s decision, billions of taxpayer dollars will be turned over to insurance companies that bet unsuccessfully on the success of the program in question. This money will have to be paid even though Congress has pointedly declined to appropriate money for that purpose.”
Many federal statutes contain phrasing such as “the Secretary shall pay,” which “the Court construes as creating a cause of action,” so this decision will have “a massive immediate impact” with “potential consequences [that] go much further,” Alito wrote.
This article by Matthew Vadum appeared April 28, 2020, in The Epoch Times.